The Economy & the Fed
Wage Growth and Real Wages
How fast pay is rising, most often read from average hourly earnings in the monthly jobs report. Wage growth matters twice. For households, what counts is real wages, pay growth minus inflation: a 4% raise with 3% inflation buys about 1% more. For the Federal Reserve, fast wage growth can feed inflation, because businesses pass higher labor costs on in prices, especially for services. That is why a jobs report with strong hiring and hot wages can push interest-rate expectations up.
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